Jonathan M. McGee 2013-01-16 04:09:24
Beyond Business Formation Many entrepreneurs first engage the services of an attorney to form a limited liability company or corporation. In some instances the entrepreneur may be choosing between the services of an attorney or that of an online document preparation services such as Legal Zoom. These online services charge a modest fee compared to most business attorneys and have become fairly popular with small business owners. In today’s market place, business attorneys must demonstrate that they provide a superior value to their clients than the online services providers. For most clients, the value of attorney advice regarding the formation of a new business venture far exceeds the value of online legal forms. The following areas are where I believe most business attorneys clearly outperform their online competition, adding substantial value in the process. 1. Choice of Entity 2. Business Name/Trademark 3. Ownership Agreements 4. Intellectual Property Rights Choice of Entity: The choice of entity is an important step in business formation and it is typically one of the first issues new business clients will want to discuss. The best choice of entity decisions require more than broad generalizations and cookie cutter analysis. There are many individual factors to consider when contemplating a choice of entity decision. Such factors include the cost of formation and maintenance, liability issues, taxation, capital and equity, entity formalities, entity complexity, regulatory requirements, type of business, location, background of founders, goals of the founders, and more. Business attorneys should balance these factors to determine where a particular business venture should be formed and whether that business should be formed as a C corporation, S corporation, LLC, limited partnership, general partnership, or some combination thereof. Business Name/Trademark: The uninformed selection of a business name is a common mistake made by entrepreneurs using online services. In many instances, the selected business name may not be protectable as a trademark due to the use of a descriptive term, geographical term or personal name. Even if a name is sufficiently distinctive, use of that name may not be advisable due to its prior use by another business. If proper clearance procedures are not followed, a business could potentially be prevented from carrying on business under its chosen name or face legal limitations on its growth into new markets. The business may be put into a difficult position of deciding whether to forego entry into a particular market or having to change its name and spend significant time and money re-establishing brand recognition. New business names should be cleared not only through the state(s) of formation and operation, but also the USPTO at a minimum. When dealing with businesses or start-ups that have aggressive plans to market the brand and grow into new markets, then an aggressive and thorough trademark clearance process should be performed. Ownership Agreements: The preparation of ownership agreements may be one of the most important legal aspects in the creation of any new business. Whether it is a shareholders’ agreement for corporations, operating agreement for LLCs, or partnership agreement for partnerships, ownership agreements set forth the rules of ownership. Business attorneys will craft ownership agreements in a manner that supports the founders’ vision of the company while protecting the business and its owners from costly disputes. Ownership agreements can address a myriad of issues including ownership percentages, capital contributions, distributions of profit and loss, management and control, compensation, commitment of time and effort, restrictions on competition, and buy-sell issues, such as when an owner quits, dies, becomes disabled or is divorced. A well crafted ownership agreement will add stability and security to a growing business by spelling out the rights and remedies for a variety of common business situations. Intellectual Property Rights: Upon formation, business attorneys will actively engage their clients in a discussion regarding the types of intellectual property (IP) owned by the founders as well as the types of IP rights that will be created by or for the business. The four basic types of IP rights are trademark, patent, copyright and trade secret. Care should be taken to ensure that any initial IP rights are transferred to the new entity through assignments by the founders. Then written agreements should be entered into with employees, independent contractors and others to ensure that any new IP rights being created will actually vest with the company. This may be done through a combination of various clauses or agreements which are tailored to the businesses specific needs, including work-for-hire agreements, assignment agreements, non-compete agreements and non-disclosure agreements. In a world of increasing competition from the internet, it is important that entrepreneurs understand the difference between online legal forms and the custom crafted documents and skilled advice delivered by business attorneys. If you adequately inform prospects regarding the value added by your services, the choice should be clear.
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